How to better exploit China and Latam complementarities? A ......Latam (Argentina) y Bielorrusiapor...

How to better exploit China and Latamcomplementarities?

A practical overview

Ya-Lan Liu

BBVA Economic Research (Asia)

Bogotá, November 25th 2009

Economic Research Department

http://serviciodeestudios.bbva.com/KETD/ketd/ing/index.jsp


OutlineOutline

22

1. Selected preliminary ideas

2. What does stronger growth in China mean for Latam?

3. BBVA global economic forecasts

Appendix: BBVA in Asia and group performance

China and Latam complementarities – Bogota, Nov.2009


1. Selected preliminary ideas1. Selected preliminary ideas

33

• The impact of China’s higher growth in Latam is transmitted by increased trade flows, rising commodity and domestic asset prices. Ultimately, the bilateral investment flows should also increase rapidly under this scenario

• In terms of trade, there is evidence of more complementarities than of direct competition. China should leverage on Latam’s geographical situation and market access as an export platform to the rest of the region and EU markets

• The internationalization of the RMB currency for cross-border transactions would eventually facilitate trade flows with Latam but also increased investment flows

• Combined with China’s capital account liberalization (likely to be gradual and asymmetric) and the ample domestic liquidity, these factors call for more Chinese portfolio investment overseas: QDII scheme, RMB settlement, RMB swap lines, etc.

• China has ample potential to become a relevant source of overseas investment following the historical experience of its peers

• Looking ahead, not only China but the rest of Emerging Asia has the potential too!China and Latam complementarities – Bogota, Nov.2009


OutlineOutline

44






Economic Research Department 55

China´s direct impact on Latam´s growth still looks relativelylimited, but there are three main potential transmission

channels:

b. Commodity prices

a. Bilateral trade

c. Asset prices

Increasing bilateral direct and capital investment

2. What does a stronger growth in China mean for 2. What does a stronger growth in China mean for LatamLatam??


Exports from Latam to Asia by country2008

China60%

India8%

Japan22%

Korea10%

China India Japan Korea


Bilateral trade: increasing ties but at a different paceBilateral trade: increasing ties but at a different pace

6

Peso de Exportaciones de América Latina a Asia (%)

-

1

2

3

4

5

6

7

8

2000 2008

Exportaciones LATAM -Asia/Total ExportacionesLATAMExportaciones LATAM - Asia/Total importaciones ASIA

Latam: Argentina, Brasil, Colombia, Mexico, Peru y Venezuela. Asia: China, India, Japón y Corea. Fuente: COMTRADE.


Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China, India).

Sources: OECD Development Centre, 2008; based on WITS Database, 2007.

Bilateral trade: complementaritiesBilateral trade: complementarities

Economic Research Department 7China and Latam complementarities – Bogota, Nov.2009

Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).

Source: OECD Development Centre, 2008; based on WITS Database, 2007.

Bilateral trade: low competition for third markets except MexicoBilateral trade: low competition for third markets except Mexico


99

Complementary schemes

FDI

Intra-industry trade

Closeness

Transport costs

Inventories (Just in Time)

Add value (complementary schemes)

In order to attract FDI, Latin American countries still has muchwork to do in improving their institutions and infrastructure

Latin America is and will continue to be an important market forChina/HK (export diversification and provision of services).

China China couldcould leverageleverage onon LatamLatam’’ss proximityproximity andand marketmarket accessaccess


Lower logistics costs

Logistics performance index (score in the range of 0-5)

Source: ERD BBVA, ECLAC (2008), World Bank (2007)

BetterBetter logisticslogistics infrastructureinfrastructure andand servicesservices in in LatamLatam keykey toto lowerlower costscosts


Acuerdo de Chiang Mai (ASEAN): Acuerdos recíprocos, no recíprocos Total US$36,5 m.M (abr04), US$83 m.M (abr07), US$120 m.M (abr09)

China: Extensión swaps Corea ($26,4 m.M, dec08), Hong Kong ($29,4 m.M. ene09), Malasia($12m.M feb09), Indonesia ($14.7 m.M. mar09)

Brunei

Camboya

Laos

Myanmar

Vietnam

China

Japón

Corea

Malasia

Filipinas

Tailandia

Indonesia

Singapur

Acuerdo ASEAN

Fuente: SEE BBVA Hong Kong

En 2009, China ha firmado por primera vez acuerdos de swaps de moneda con bancos centrales de Latam (Argentina) y Bielorrusia por un periodo inicial de 3 años

RMB RMB ““swapswap”” lineslines withwith central central banksbanks forfor tradetrade settlementssettlements


29.9 33.2 44.8 57.2 90.63117.91

183.97

5.6%

93.0%

123.1%

72.5%

-60.9%

25.3%

110.9%

0

20

40

60

80

100

120

140

160

180

200

2002 2003 2004 2005 2006 2007 2008

Mil.mill.USD

-100%-80%-60%-40%-20%0%20%40%60%80%100%120%140%

%a/aIED al exterior, acumulado A/A

Chinese FDI has ample room to increase further when compared with the experience of its peers in Asia

Source: Mofcom, BBVA ERD

ChinaChina´́ss outwardoutward directdirect investmentinvestment

Chinese outward FDI growth

(year-on-year vs stock)

Chinese FDI stock vs Selected Asian Peers

(outward FDI stock as % of GDP)

0

2

4

6

8

10

12

14

1999

2000

2001

2002

2003

2004

2005

2006

2007

% of GDP

South Korea

China

Japan

Source: UNCTAD (2008), BBVA ERD


0 10 20 30 40 50 60

Diff iculties in dealing w ith local governments

Low localization level

Social disorder

Safety of staff and w orkshop

Distribution channel

Image building

Labor cost

Capital shortage

Slow reaction to changes in local markets

Culture conflict

% of firms surveyed

Important orveryimportant

Notimportant

N/A

Main Challenges Faced in International Operations(in % of responses, firm survey)

Source: Battat, Joseph, FIAS/ MIGA Firm Survey (April 2006)

ButBut, how , how isis thethe ChineseChinese investmentinvestment experienceexperience overseasoverseas??


Fecha Anuncio Empresa Inversora

Empresa Receptora

Tipo de Operación Sector País

Importe (US$ millones) Comentarios

27-abr-09 China Sci-Tech Holdings Limited OZ Minerals Ltd.Adquisición minas oro y plata en Indonesia

Minería Australia 211 Finalizacion venta prevista en junio 2009

24-abr-09 China Minmetals Group OZ Minerals Ltd. Adquisición de activos Zinc Australia 850

Aprobado. Oferta anterior por 100% capital (US$2500 millones) rechazada por el gobierno australiano

16-abr-09 China National Petroleum Corp Oil and Gas Kazakhstan Créditos Gas y

petróleo Kazakhstan 5000 Garantizar el suministro de crudo

05-abr-09 State Development Bank Ecuador Créditos Petróleo Ecuador 1000 Garantizar el suministro de crudo

13-mar-09 State Development Bank Angola Créditos Petróleo Angola 1000 Garantizar el suministro de crudo

24-feb-09 Hunan Valin Iron & Steel Group Fortescue Metals Group Ltd.

17.6% participación de capital

Acero Australia 936 Aprobado

21-feb-09 State Development Bank PDVSA Créditos Petróleo Venezuela 4000 Garantizar el suministro de crudo

18-feb-09 State Development Bank Petrobras Créditos Petróleo Brasil 10000 Garantizar el suministro de crudo

17-feb-09 State Development Bank Rosneft,Transneft Créditos Petróleo Rusia 25000 Garantizar el suministro de crudo

12-feb-09 Aluminum Corp. of China Rio TintoJoint venture y suscripcion de bonos convertibles

Acero Australia 19500

Pendiente aprobacion por el gobierno australiano. Seria la mayor inversion directa china hasta la fecha

Fuente: prensa china, SEE BBVA

Operaciones recientes de créditos y M&A de empresas/instituciones estatales chinas en 2009

ChinaChina´́ss ““goinggoing outout”” strategystrategy drivendriven by by statestate enterprisesenterprises ……


…… andand increasinglyincreasingly M&AM&A activitiesactivities toto acquireacquire global global brandsbrands



OutlineOutline

1616China and Latam complementarities – Bogota, Nov.2009





2009 2010 2011 2012US -2.5 1.5 2.2 2.5

EMU -3.8 0.2 1.2 1.5

Spain -3.8 -1.2 1.2 2.4

Mexico -7.2 3.1 4.0 4.2

Brazil -0.1 4.7 4.4 5.0

LatAm 5 -1.0 2.3 3.0 3.4

China 8.3 9.3 8.9 9.0

Non-China Asia 1.1 4.4 5.7 5.9

Source: BBVA ERD

Central

October 2009 GDP growth scenarios

a. Global forecasts 2009a. Global forecasts 2009--20122012

Economic Research Department Global economic outlook 17

Note: Latam 5 includes Argentina, Chile, Colombia, Peru and Venezuela

b. China forecasts 2009b. China forecasts 2009--20122012

Economic Research Department 18

China forecasts (as of October 2009)2008

GDP 9.0 8.3 9.3 8.9 9.0

average 5.9 -0.3 2.7 3.3 3.6

eop 1.2 1.4 3.1 3.4 3.7

average 6.9 6.8 6.7 6.5 6.2

eop 6.9 6.8 6.6 6.3 6.1

Interest rate eop 5.3 5.3 5.6 6.1 6.4

2011F 2012F

CPI, headline

RMB/USD

2009F 2010F

Source: BBVA ERD

Global economic outlook


OutlineOutline

1919China and Latam complementarities – Bogota, Nov.2009





TokioOR Seul

Singapur

OR TaiwanHong Kong

OR BeijingOR Shanghai

OR Mumbai

OR Sidney

OR=oficina de representación/representative office

BBVA presence in Asia BBVA presence in Asia

20

Financial services(81%)

Industrial andother services

(19%)

China Hong Kong

CITIC Securities

CITIC Trust&Inv

CITIC PrudentialInsurance

CITIC Futures

CITIC Asset Mgt.

CITIC Ka Wah Bank

CITIC Int’l Asset Mgt.

CITIC Capital Markets

BBVA

Namely, natural

resources, communicati

ons, infrastructure,

energy and real estate

4,8% 14,9%

62,3%

Strategic alliance with China CITIC bank Strategic alliance with China CITIC bank

An important milestone in building BBVA as the bank of choice in Asia

China CITIC bank

21

See 2009Q3 results in our website:http://www.bbva.com/TLBB/tlbb/jsp/ing/home/index.jsp

BBVA started 2009 on a strong footingBBVA started 2009 on a strong footing……

BBVA, a business model focused on client-based retail banking

22

……and an extended global franchise and an extended global franchise

BBVA, a diversified international presence

23

BBVABBVA’’ss superior performance in 2009superior performance in 2009

Strong growth in operating income this year confirms BBVA group as the leader in efficiency and profitability

Peers: Barclays, BNPP, Crédit Agricole S.A., Credit Suisse, Deutsche Bank, HBOS, Intesa Sanpaolo, Lloyds, RBS, Santander, Société Générale, UBS y Unicredit

24

BBVABBVA’’ss strong fundamentalsstrong fundamentals……

BBVA’s balance sheet position is solid

25

……strengthening in a complex environmentstrengthening in a complex environment

BBVA one of the banks with strongest ratings in the current environment

26

How to better exploit China and Latamcomplementarities?

A practical overview

Ya-Lan Liu

BBVA Economic Research (Asia)

Bogotá, November 25th 2009



Will the recovery be robust enough?

An Asian outlook

BBVA Economic Research

November 17, 2009



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How to better exploit China and Latam complementarities? A ......Latam (Argentina) y Bielorrusiapor...

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